Funding issues, a result of permitting costs, off-take arrangements and supply concerns, are preventing rapid investment decisions for natural gas-based methanol plants in Canada, an analyst told Petrochemical Update.

Rail traffic may be less ideal than a sea-port for methanol investments. Image: werner22brigitte/Pixabay

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Two Canadian methanol projects with a combined price tag of more than $3 billion that aim to turn readily available natural gas in the west of the country to process and feed Asian demand face challenges likely to slip projected timelines.

Cheap and affordable ethane and propane, along with tax incentives have encouraged Canada’ slow-growing petrochemical industry to invest further, despite political and trade hurdles.

Nauticol, a group that in October said it planned to announce a Final Investment Decision (FID) in 2019 in time to start construction this same year of a $1.5-billion plant in Alberta to process 3 million tonnes/year of methanol, had as of May yet to announce advances toward funding.

Another methanol project announced much earlier this decade for British Columbia and led by the Canadian Methanol Corporation, that involved a $1.6-billion investment for a 1.8-million tonne/year methanol plant, appears further behind.

Experts project methanol demand will increase, requiring new projects to feed it. However, challenges appear to be preventing prompt investment decisions in the two Western Canadian projects.

Nauticol’s FID and plans slipping

Both projects “look to take advantage of ample and low-cost natural gas in Western Canada, enjoying what should be relatively low transportation costs versus the U.S. Gulf Coast to Asian markets,” Mark Berggren, managing director of Methanol Market Services Asia, told Petrochemical Update by email.

In addition to geographic advantages, “the facilities are using proven technologies,” Berggren added.
However, funding is likely to remain a challenge.

“The sponsors will need to raise funds for each facility, in addition to securing permits. Both activities will increase the likelihood that the FID for Nauticol will slip, given most financiers will require strong offtake arrangements from blue chip companies, and permitting costs are not insignificant," he said.

He also noted that both projects would “rely on rail traffic which is less ideal than access to a deep sea-port.”

Nauticol update 'coming soon'

Nauticol officials did not comment on a request to say whether the FID, and a startup of construction, are still likely before the end of the year.

"Nauticol will be providing a progress report to our key stakeholders and commercial partners in the next few weeks and some broader information will be made available in the public domain," Terri Ellen Sudnik, communications vice president, told Petrochemical Update by email.

Methanol pricing is mostly influenced by international crude oil prices that reached a peak in October to plunge by the end of the year.

According to the Methanex Monthly Average Regional Posted Contract Price History for Asia, prices in October –when the project was announced—were the second highest in the year at $495/tonne, only lower than $510/tonne in November. Prices then plunged about 30% by February to $345/tonne. May prices were $370/tonne.

A separate global methanol pricing comparison published by The Methanol Institute, with data attributed to Methanol Market Services Asia, showed that as of January spot prices for Methanol CFR Main Port China were well under $300/tonne, down from just over $400/tonne about three months earlier.

Methanex cast doubts

An official at Methanex, a Canadian company that is the world’s biggest methanol producer and has production facilities in Alberta, as well as in other areas of the world including Louisiana and Trinidad and Tobago, has cast doubt in Canadian press about Nauticol’s project.

“In our opinion, some of the expectations on project schedule and capital cost of competing methanol projects in Western Canada do not seem realistic,” Methanex’s vice president Mark Allard told Canadian newspaper Medicine Hat News, as published on February 21.

Allard added that the announcement of methanol projects would not impact an ongoing expansion planned at Methanex in Medicine Hat, Alberta to twin facilities there, the newspaper said.

A request sent to Methanex to confirm the commentary was not immediately replied.

Methanex restarted in 2011 a methanol plant in Medicine Hat that had been idled since 2001. The restart came after the start of a program to buy natural gas in Alberta. Methanex lists current annual capacity there at 0.6 million tonnes/year.

"As a private company we are not discussing comments made by others," Nauticol’s communications vice president Sudnik said.

Sudnik did not comment either on potential vulnerabilities of a project that contemplates exporting most output to China at a time of trade disputes between the Asian nation and Canada’s closest trade partner, the U.S., by far the largest destination of Canadian exports.

The U.S. and China have an ongoing trade dispute since last year that may not only threaten trade flows but could slow economic activity, curbing energy demand. 

In mid-May, China formally arrested two Canadians accused of espionage and detained in December. This followed an incident in which Canadian authorities arrested late last year a top executive of China’s Huawei at the request of U.S. authorities, over allegedly defying a ban over trading with Iran.

The arrest report for the Canadians came a few hours after a U.S. ban on China’s biggest private company Huawei which placed it on a blacklist.

Canadian Methanol Corporation

Nauticol has received $61 million in royalty credits for the first phase of this project that will have three units in Grande Prairie and with completion estimated by Nauticol by 2022.

As for the Canadian Methanol Corporation, founded in 2012, the project is slated to develop following the construction of the Blue Fuel Energy Gasoline refinery, according to information on the Linkedin profile of founder Juergen Puetter, listed as CEO in the website of Blue Fuel Energy.

According to Blue Fuel Energy’s website, the refinery is still in an “advanced planning” stage, according to information updated as of this year.

An email sent to Puetter's listed email address in Blue Energy website was not immediately replied, nor was it possible to immediately hear back from RBC Capital Markets officials tapped to raise capital for the renewables-and-natural-gas-to-gasoline project at the refinery that is to precede construction of the methanol plant.

Puetter is presently listed in Linkedin as president of Renewable Hydrogen Canada.

Rising methanol demand

World demand for methanol grew at a compounded annual rate of about 7% between 2013 and 2018, according to data from Methanol Market Services Asia published by the Methanol Institute. About half of the world’s methanol supply is used to produce derivatives such as formaldehyde or methyl methacrylate (MMA). Then nearly half is for fuel, or fuel applications such as to produce biodiesel or MTBE.

China, which uses methanol as vehicle fuel, accounts for more than half of the world’s methanol demand. The country promotes methanol use as fuel to cut emissions.

By Renzo Pipoli